Bove, who rates Merrill Lynch a "sell," said he cut his
2008 earnings view on the world's largest brokerage to $4.57 a
share from $6.35 a share, and added that while it was possible
to believe that the firm's balance sheet had been properly
adjusted, it was harder "to plot" a very positive earnings
outlook.

The analyst noted that Merrill's holdings in financial
instruments that were being questioned by the market, although
much reduced, were still sizable at the end of 2007.

"The nature of these holdings suggests that there could be
further write-downs if two conditions exist, either the economy
turns weaker causing more defaults or buyers continue their
unwillingness to own these securities irrespective of economic
conditions," Bove wrote in a note to clients.

Merrill Lynch, once the largest underwriter of
collateralized debt obligations (CDOs) in the United States,
had on Thursday reported around $16 billion in mortgage-related
write-downs and adjustments in the worst quarter in its
history.

Financial stocks in the U.S. and Europe have been hit badly
by the surge in U.S. subprime defaults that began last summer,
and many have revealed huge write-downs or sold shares to
foreign investors to raise capital.